Chargeback Prevention

FAQ: Verifi CDRN Chargeback Alerts

Verifi CDRN Prevention Alert_Blog Image


Looking for ways to reduce chargebacks?  You should be!  Too many chargeback requests can cost a merchant their access to credit card payment processing services, even if the chargebacks don't turn out to be legitimate.  This can be especially frustrating when a chargeback is initiated for a transaction that the merchant would have been willing to refund if the customer had asked them first.  

One way to reduce the number of chargebacks that end up in your merchant file is to use a Cardholder Dispute Resolution Network (CDRN), like Verifi.  These networks provide merchants with alerts that can allow them to circumvent the chargeback process and issue refunds, without getting the banks and payment processing companies involved.

What Are the Effects of Chargebacks?

Visa, MasterCard, and American Express, the three big credit card networks, keep track of merchants' chargeback ratios.  

If a merchant's ratio of chargebacks to transactions get too high, within a certain time period, their acquiring bank may close their merchant account and possibly list them in a Terminated Merchant File (TMF), which can make it difficult to open a new merchant account with other payment processors.

New call-to-actionDifferent types of businesses may have different chargeback thresholds before they're considered too risky—a small brick-and-mortar store may have more leeway than a high-volume online retailer, for example.  If a merchant starts to look like a high risk, some acquiring banks may even start putting restrictions on their monthly processing volume, hold funds in reserve to guard against chargeback losses, and even terminate accounts before the threshold of excessive chargebacks is reached.

It's becoming more common these days for consumers to initiate chargebacks with their banks before they've even tried reaching out to the merchant to resolve their issue.  These consumers might not have malicious intentions, but this "friendly fraud" can still have dire consequences for merchants who don't have any kind of chargeback protection.

Merchants whose accounts are terminated after crossing their chargeback ratio threshold might not be able to open a new account with a reputable acquiring bank and must instead use expensive "high-risk" payment processing services if they want to stay in business.

What is Verifi?

Based in Los Angeles and founded in 2005, Verifi is a company that provides payment protection and management services for e-commerce companies.  

Their CDRN receives immediate notifications from issuing banks about cardholder issues, which allows them to alert merchants, giving merchants the chance to resolve these issues before they become chargebacks (as seen below).

Verifi CDRN Chargeback Alerts

The CDRN notifications effectively freeze the chargeback process and give the merchant the first opportunity to deal with the customer's problem.  The merchant can choose to give the customer a refund and resolve the issue or do nothing and allow it to proceed as a chargeback, which they can then dispute if they believe it to be illegitimate or fraudulent.

Why Are CDRN Notifications Beneficial?

The main advantage of CDRN notifications is that they give merchants the chance to resolve an issue with a customer directly before it officially becomes recognized as a chargeback.  

That means their ratio remains unaffected, so they won't be penalized by their card network or acquiring bank.

Verifi charges users a fee for every alert they receive from the CDRN, regardless of how they choose to handle the issue.  However, the fees are comparatively small, when you consider how expensive and time-consuming it would be to deal with the costs of losing your payment processor, due to excessive chargebacks.

Is Verifi the Only Company That Provides These Notifications?

Download the eGuide, 4 Reasons to Hire a Chargeback Management CompanyAnother company that offers chargeback prevention alerts is Ethoca, which is based in Canada.  Both Verifi and Ethoca work with a large network of issuing banks to identify cardholder disputes in real time, and while there is significant overlap between both networks, they are not identical.  Verifi currently has better coverage in the United States and is working to expand their network, while Ethoca has more banks from Canada, Europe, and Asia in their network.

Both companies charge a fee whenever an alert is issued, and both require merchants to act on an alert within 24 hours of receiving it.  If an alert isn't dealt with on time, it proceeds as a chargeback, but the merchant is still obligated to pay the fee.

Signing up with both Verifi and Ethoca gives merchants the widest range of coverage for chargeback prevention alerts, but because most of the largest issuing banks are included in both networks, merchants who sign up with both might receive duplicate alerts and have to pay twice the fees.

Why Let a Chargeback Management Company Handle Alerts for You?

  1. Working with a chargeback management company who is an authorized reseller of Verifi and Ethoca prevention alert programs means that you have the coverage of both Verifi and Ethoca, and one unified system to manage your alerts effectively. 

  1. When you hire a chargeback management company, you have a dedicated team that responds to chargeback prevention alerts within the required time frame. This way you never have to worry about failing to respond in time—whereas, when a merchant signs up for alerts directly with the networks, the burden of resolving the alerts falls on the merchant.

  1. Some chargeback management companies provide an intuitive dashboard, where you can manage the alerts from different networks in one portal, versus logging in to multiple systems to track your prevention alerts.

  1. A chargeback management company may even offer a 100% chargeback prevention guarantee when a prevention alert is handled. This means if an alert, after issuing a refund, still turns into a chargeback, the management company will refund 100% of your alert fee.

  2. Lastly, a chargeback management company may charge the same fee that is charged by the alerts networks, plus you get all of the additional benefits listed above.

What’s the Fastest the Alert Networks Can Intercept and Prevent My Chargebacks?

New Merchant:  15 – 30 days
(Haven’t processed any transactions before)

Existing Merchant:  7 – 10 days
(Never enrolled in a prevention alert network before)

Existing Merchant:  1 day
(Previously enrolled in prevention alerts, but switching providers)

What Percentage of Chargebacks Can a CDRN Prevent?

The number of chargebacks that can be halted by the prevention alert networks depends on several factors, including:

  1. Transaction Count (Coverage increases as the number of transactions goes up)

  2. Location of Customer Bank (Customer base within the U.S. has better coverage than overseas)

  3. Years in Operation (businesses which are more established generally have better coverage than newer merchants)

Based on our internal data analysis, here are the percentages of certain types of chargebacks that a CDRN can prevent:

Service/Product

Verifi

Ethoca

Physical Goods

21%

17%

Digital Goods

41%

30%

Digital Service

17%

33%

Subscription Industry

19%

14%


How Much Do Prevention Alerts Cost?

Individual merchant costs vary, based on your prevention alert count.  Usually, the cost ranges from $35 - $40, per alert received.

What Do I Need to Get Started with a Prevention Alert Network? 

To have your merchant accounts successfully enrolled in the prevention alert network, you must provide:

  1. Business/Merchant Name

  2. Registered Address of the Business

  3. Merchant Account Descriptor (name as seen on customer credit card statements)

  4. Merchant Account Number (ID provided by your payment processor)

  5. Access to Your Sales System (for refunds and alert resolution)

Is a Prevention Alert Network My Only Option to Prevent Chargebacks?

A CDRN is a temporary solution in our opinion since it does not truly manage the root cause(s) of your chargebacks.

Using a CDRN can be costly.  Here is an example of what a prevention alert with a CDRN could add up to:

Transaction Amount

$100.00

Cost of Goods

$25.00

Fulfillment Costs

$8.00

Marketing Cost

$25.00

Processing Fee

$3.50

Operations Fee

$10.00

Prevention Alert Fee

$40.00

Total Cost

$211.50

(Over 2x the cost of the Transaction Amount)


If you’re aiming to reduce chargebacks, here are five simple steps you can follow to reduce them organically:

  1. Set realistic expectations for your products and services

  2. Ensure you have stellar customer service practices in place by providing quick responses to all phone calls and emails

  3. Provide both terms of service and refund terms to customers before transactions

  4. Make it simple for customers to reach customer service, or to cancel their order or subscription

  5. Address any internal issues that trigger chargebacks

Thanks for following the Chargeback Gurus blog. Feel free to submit topic suggestions, questions or requests for advice to: win@chargebackgurus.com
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